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Geoffrey Arend Air CArgo News Thought Leader
Vol. 13 No. 57                                                                                                                             Tuesday July 1, 2014

 

Surprise P-3

P3 Fortune Cookie

     How ironic.
     In a world where cooperation can only be reached if we work together, in the end it was China—where the state monopolizes politics and much of the economy—rather than the EU or U.S. that decreed the P3 alliance of shipping giants would hurt competition on the high seas.
     P3 was supposed to bring together three family-owned European giants of liner shipping—CMA CGM, Maersk Line, and MSC—on the Asia-Europe, Trans-Pacific, and Trans-Atlantic trades where 2.6 million TEU of container-carrying capacity and some of the world’s largest ships were set for deployment to cut slots costs through economies of scale. Some had also hoped the more efficient deployment of the global fleet would bring more stability to freight rates.
     But regulators in Beijing ruled that plans to operate the combined fleet from a joint operational center made P3 different from other shipping alliances due to the high level of cooperation and cost sharing this involved. They also said the interests of ports and shippers might suffer from the market concentration that P3 would have heralded, especially on the Asia-Europe trade where the three carriers command over 45 percent of the market at present.
     China’s Ministry of Commerce concluded P3 would reduce liner shipping competition and increase barriers to entry, infringing the country’s Anti-Monopoly Law. They could also have concluded (but pointedly did not) that Chinese lines had much to lose if such a scenario had played out.
     “The Ministry of Commerce does not object to enterprises using their own resources to achieve competitive standings in the market,” the Ministry said. “But for these already powerful enterprises to further their market dominance by entering into alliances, there will be a need to seriously analyze the impact on competition.”
     Shippers had long argued that the sheer size of P3 and the gigantic ships due to be operated by its members would reduce competition and/or force other carriers to buy ultra large container ships to compete, thereby increasing rate volatility due to excess supply.
     Asian shippers were quick to welcome China’s decision, which followed approvals for P3 by regulators in Europe and the US. They lauded it as the first major decision by China on liner shipping using its Anti-Monopoly Law since it came into force in 2007.
     “Asian shippers were against the formation of P3 from day one,” read a statement from the Singapore National Shippers’ Council. “P3 as proposed would have resulted in the biggest concentration of capacity seen in the history of containerization. The sheer size would have given P3 the capability to dictate the direction of the freight market.
     “For shippers in Asia, it is a landmark decision, coming after the EC’s repeal of the block example for liner shipping conferences in 2008.
     “It has given us fresh hope going forward and energized our drive to work for maritime regulatory reform to bring an end to the ‘cartel system’ in liner shipping.”
     In the meantime, Maersk, MSC, and CMA CGM have vowed to continue to improve operating performance. Møller-Mærsk Chief Executive Nils Andersen admitted the Chinese decision was a surprise, but said the company would continue to deliver “very good results” already achieved on a stand-alone basis. He also said that smaller alliances and capacity adjustments were options in the wake of the P3 rejection.
     Rival alliances such as CKYHE and G6 had extended their own vessel sharing arrangements in response to the formation of P3. What happens to these agreements and how regulators now view them is yet to be decided.
SkyKing


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